In the new year and with the current bull run, this could be a very relevant article for anyone who is thinking of disposing or swapping their crypto assets. Capital gains taxation is relevant for both corporates and individuals.
Let’s start with a story. In 2010, John a tech enthusiast, curious about a new concept called “Bitcoin,” decided to invest £100 to buy BTC. At the time, Bitcoin was a novel experiment, far from the global phenomenon it has become. Fast forward to 2025, John discovers that each Bitcoin is now worth approximately £75,000.
His five BTC are valued at £375,000—a staggering return on his original investment. But as John prepares to sell his Bitcoin, he’s confronted with a pressing question: will he owe taxes on his profits? If so, how much?
In this article, we’ll break down the rules surrounding capital gains tax (CGT) on cryptocurrency in the UK, using John’s situation as a practical example. We’ll explore how crypto is treated for tax purposes, delve into relevant legislation, and provide tips on minimising your tax liability.
As with all things, this is an educational piece not intended to act as professional advice. If you have an individual situation to check on, please reach out and we’ll be happy to help or suggest professionals with more experience in the sector.
How Is Cryptocurrency Taxed in the UK?
HM Revenue & Customs (HMRC) views cryptocurrency under most circumstances as a capital asset, similar to shares or property. As a result, profits from selling or disposing of cryptocurrency are generally subject to capital gains tax (CGT). Whether you’re selling Bitcoin, Ethereum, or other digital currencies, HMRC expects you to declare any gains made from these transactions.
Let’s revisit John’s situation. John bought five BTC in 2010 for £20 each, spending £100 in total. In 2025, he sells them for £375,000. Here’s how his capital gains tax liability is calculated:
Determine the Gain:
John’s sale price (£375,000) minus his purchase price (£100) equals a gain of £374,900
Account for the Annual Exempt Amount:
In 2025, the CGT annual exemption allowance is £3,000 (this figure can change yearly). Subtracting this from John’s gain leaves £371,900 subject to CGT.
Apply the Tax Rate:
The CGT rate depends on John’s total taxable income. If he’s a basic-rate taxpayer, he’ll pay 10% CGT, amounting to £37,190. If he’s a higher or additional-rate taxpayer (income over £50,270), he’ll pay 20%, amounting to £74,380.
(These calculations are examples only. Tax rates and annual exemption amounts change consistently, so please refer to the HMRC website for latest rates)
What are some key Rules About Capital Gains Tax on Crypto
1. CGT Is Triggered by “Disposal”
A taxable event occurs when you “dispose of” your cryptocurrency. This includes:
- Selling cryptocurrency for fiat currency (like GBP).
- Swapping one cryptocurrency for another (e.g., exchanging Bitcoin for Ethereum/stable).
- Using cryptocurrency to purchase goods or services.
- Gifting cryptocurrency (except to your spouse or civil partner).
2. Calculating Gains: The Share Pooling Method
HMRC uses a concept called “share pooling” to determine the acquisition cost of cryptocurrencies. This method averages the cost of all tokens you hold in a given cryptocurrency, rather than tracking the cost of individual transactions.
Example:
If John had purchased additional BTC in 2015 and 2020, the average cost of all his Bitcoin holdings would need to be calculated to determine his gain.
If you are unable to use the share pooling method individually, you can consider a crypto tax software such as Koinly for this purpose.
3. Reporting Requirements
Crypto holders must declare gains on their Self Assessment tax return. If you are a corporate and have held intangible assets on your balance sheet which has been swapped or disposed for a gain in 2025, it would be considered for capital tax gains on crypto in the UK in your ensuing end of financial year accounts. This is generally calculated and as required in the company’s CT600.
What are some planning strategies for Crypto Investors
- Determining a firm exit strategy If you’re seriously considering crypto to diversify your assets, always have an exit strategy in place. From the time of investment, if you convert / swap a portion each year to maximise the CGT allowance (which was as high as £12k a few years before), that will help in curbing large gains and consequent tax charge.
- Use Your Annual Exempt Amount
Stemming from point 1 above, by timing your disposals across tax years, you can maximize your use of the annual CGT allowance. - Offset Losses
If John had incurred losses from other crypto investments, he could offset these against his Bitcoin gains, reducing his CGT liability. Losses must be reported to HMRC within four years. - Gifting to a Spouse
Transferring assets via gifting to a spouse or civil partner can allow couples to leverage both individuals’ annual exemptions and potentially lower tax brackets depending on the their personal tax exposure levels. While this is an effective strategy, HMRC has specific rules around gifting. A recent HMRC discussion on their forum discusses this in detail. - Consider Tax-Efficient Investments
Some investors hold cryptocurrency within tax-advantaged accounts like Self-Invested Personal Pensions (SIPPs). However, as of 2025, HMRC does not generally permit direct cryptocurrency holdings within such accounts. If there is a disposal for fiat and post CGT taxes have been dealt with , a contribution in fiat can be made to a personal pension. That would gain some tax advantage for pensions at source tax relief (depending on your type of pensions).
![](https://evalua8.com/wp-content/uploads/2025/01/pexels-mikhail-nilov-8297240-1024x683.jpg)
Beyond Capital Gains: Other Tax Considerations
Given the level interest on capital gains tax on crypto in the UK, we thought it prudent to cover a few other areas too.
Income Tax on Crypto
If John earned Bitcoin through mining, staking, or as airdrops, this income would be subject to income tax rather than CGT. The taxable amount would be the fair market value of the coins at the time they were received.
VAT and Crypto
HMRC considers cryptocurrency mining transactions outside the scope of VAT, however legislation in this area is subject to wide changes. It’s also quite common for HMRC to investigate companies in the sector for VAT applicability. In general an activity that can be considered to be economic in nature, maybe subject to VAT. As an example, if John invented a software that could be downloaded for mining purposes, that is essentially a software activity and not mining. In that case, any sale to a UK customer would be subject to VAT as usual.
Regulatory Landscape and Future Changes
Apart from our current subject of capital gains tax on crypto in the UK, regulations in this are are evolving in the UK. Especially with the advent of MiCA (Markets in Crypto-Assets Regulation) in the EU, wider changes are expected across the region. HMRC has taken a proactive stance in clarifying tax rules in many areas, and investors must stay informed about potential changes.
- All images in the blog are creative commons licensed and allowed for commercial use
- HMRC’s manual on crypto assets is available for anyone interested https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto22600